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FE D E R A L R E S E R V E B A N K O F D A L L A S
Station K, Dallas, Texas 7 5 2 2 2

C i r c u l a r No. 84-47
April 4, 1984

TO:

All member banks and others concerned in the Eleventh
Federal Reserve D i s t r i c t

ATTENTION:

Chief Executive Offi cer

SUBJECT:

Proposed amendments to Regulation G,
concerning Securities Credit Transactions

SUMMARY:

The Board of Governors of the Federal Reserve System
is proposing to amend i t s Regulation G, T, and U to
au to m ati cal ly permit brokers and d eal er s to lend on
ov er -th e- co u nt er s e c u r i t i e s designated f o r t ra di ng in
the
National
Market
System portion of NASDAQ.
I n t e r e s t e d p a r t i e s are i n v i te d to submit comments to
William W Wiles, S ec re ta ry , Board of Governors of the
.
Federal Reserve System, 20th S t r e e t and Co ns ti tu ti on
Avenue,
N.W., Washington, D.C., 20551.
Comments
should r e f e r to Docket No. R-0512 and must be received
by April 27, 1S84.

ATTACHMENTS:

Board's press r e le a s e and material as submitted fo r
pu bl ica ti o n in the Federal Register

MORE INFORMATION

Legal Department, Extension 6171

ADDITIONAL COPIES:

Public A f fa ir s Department, Extension 6289

T,

and

U

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

FEDERAL RESERVE press release

For immediate re le a s e

March 12, 1984

The Federal Reserve Board today published for publ ic comment a
proposal t h a t would automatically permit brokers and de al er s t o lend on
ov er -t h e- co un te r s e c u r i t i e s designated for tr a d i n g in the National Market
System po rt io n of NASDAQ
ments.

\j

in conformance with the Board’s margin r e q u i re ­

The proposal would amend the Board's margin re g u l at i o n s (Regulations

6, T and U).

Comment is requested by April 27.

The National Market System l i s t of s e c u r i t i e s was developed in response
to a l e g i s l a t i v e mandate to the S e c u r i t i e s and Exchange Commission (SEC) t o
f a c i l i t a t e and r e g u l a te development of a market system linking s e c u r i t i e s markets
through uniform r e p o rt i n g systems.

Unlike other s e c u r i t i e s tr aded in the over-

th e - c o u n t e r market, “l a s t sale" rep ortin g i s required of National Market System
securities.

Stocks are included in the National Market System under two se t s of

c r i t e r i a developed by the NA with the approval of the SEC.
SD

C u rr en tl y , t h e r e

are nearly 800 stocks traded in the National Market System and 1,100 additional
i ss u es are repo rte dly e l i g i b l e fo r i ncl usi on under the present c r i t e r i a .
I t i s expected t h a t s e c u r i t i e s added to or removed from th e National
Market System wi ll be published by the SEC in the Federal R e g i s t e r .

Under the

proposal, the s e c u r i t i e s will au tom atically become "margin s e c u r i t i e s " upon
publication.

The Board expects to continue to publish i t s L i s t of OTC Margin

Stocks t o des ignate other ov er -th e- co u nt er s e c u r i t i e s t h a t are sub je ct to margin.
The Board's no ti ce i s at ta c h e d .
-

0

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Attachment
1/

National Association of S e c u r i t i e s Dealers Automated Quotation.

FEDERAL RESERVE SYSTEM
Regulations G, T and U
[12 CFR 207, 220 and 221]
[Docket No. R-0512]
SECURITIES CREDIT TRANSACTIONS
Amendment to d e f i n i t i o n of "margin se cu ri t y " to automatically
include National Market System s e c u r i t i e s
AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Proposed amendments.

SU M RY:
MA

The Board proposes to amend the d e f i n i t i o n of "margin se cu ri ty " in

Regulation T and the d e f i n i t i o n s of "margin stock" in Regulations G and U to
give automatic marginabi1i t y to any ov er -th e- cou nt er s e c u r i t y designated by
the S e c u r i t i e s and Exchange Commission as q u a l i f i e d for tr ad in g in the National
Market System.
DATE:

Comments should be received by April 27, 1984.

ADDRESS:

Comments, which should r e f e r to Docket No. R-0512, may be mailed

to William Wiles, S ecr et ary , Board of Governors of the Federal Reserve System,
20th S tr e et and Cons ti tu ti on Avenue, N.W., Washington, D.C. 20551, or delivered
to Room B-2223 between 8:45 a.m. and 5:15 p.m.

Comments received may be

inspected at Room B-1122 between 8:45 a.m. and 5:15 p.m., except as provided
in se ct io n 261.6(a) of the Board's Rules Regarding A v a i l a b i l i t y of Information
[12 CFR § 261. 6 ( a ) ] .
FOR FURTHER INFORM
ATION CONTACT:

Robert S. P l o t k i n , A s si st an t D i r e c t o r,

Laura Homer, S e c u r i t i e s Credit O f f i c e r , or Jamie Lenoci, Financial Analyst,
Division of Banking Supervision and Regulation (202) 452-2781.
t i o n on the economic a n a l y s is c on ta ct :

For informa­

Carolyn DuBose Davis, Economist,

Division of Research and S t a t i s t i c s (202) 452-3633.

-

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SUPPLEM
ENTARY INFORMATION:
The National Association of S e c u r i t i e s Dealers (NASD) has asked the
Board to give automatic m a r g i n a b il i ty to those s e c u r i t i e s on i t s "National
L i s t . " The NASD regards over 2500 s e c u r i t i e s tr ad i n g in i t s automated quotation
system (NASDAQ) including 700 stocks in the National Market System, as i t s
National L i s t .

Information on p ri ces and volume of tr ad i n g f o r s e c u r i t i e s on

th e National List i s published in about 100 U.S. and foreign newspapers.

The

m ajority of stocks in the National L is t are already on the Board's Lis t of
O Margin Stocks or are p o te nt ia l candidates for the L i s t .
TC

The Board's List

is published t h r e e times a year but because of time lags in adding stocks to
t he L i s t , t he NA bel ieves i t i s a t a competitive disadvantage with exchanges
SD
where s e c u r i t i e s are marginable as soon as a r e g i s t r a t i o n f o r l i s t i n g becomes
effective.

S t a f f an a l y s i s i n d i c a t e s t h a t s e c u r i t i e s t r ad in g in the National

Market System with " l a s t sale" r epo rti ng could be made au tom atically marginable (upon pu bl ic at io n in the Federal Register of the ad di ti ons to and d e l e ­
t i o n s from t h a t category) since l i q u i d i t y and other f a c t o r s compare favorably
with s e c u r i t i e s traded on major exchanges.

The other National List s e c u r i t i e s

do not have " l a s t sale" rep ortin g and, as a group, e x h i b i t l e s s l i q u i d i t y .
I t i s expected t h a t the S e c u r i t i e s and Exchange Commission will publish the
s e c u r i t i e s added to or removed from the National Market System des ignation in
th e Federal R e g i s t e r ; upon t h i s f i l i n g the s e c u r i t i e s will be aut omatically
"margin s e c u r i t i e s " .
INITIAL REGULATORY FLEXIBILITY ANALYSIS:
The Board's proposal t o amend i t s margin r e gu la ti o n s t o include
s e c u r i t i e s t h a t are designated as q u a l i f i e d for tr ad in g in t he National
Market System by th e S e c u r i t i e s and Exchange Commission i s not expected to
have any adverse impact on a s u b s t a n t i a l number of small b u si ne ss e s.

Analysis

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3

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in d i c a t e s t h a t approximately 95 percent of a l l p resent National Market System
s e c u r i t i e s are c u r r e n t l y on the Board's L is t of OTC Margin Stocks.

Under the

proposal, the p o te nt ia l candidates would be marginable a t a brokerage

firm as

soon as the SEC f i l e s the names with the Federal Reg ist er f o r p u b li c a t i o n and
could be used immediately as c o l l a t e r a l in a margin account.

However, because

of the m a r g i n a b il it y of these s e c u r i t i e s , c e r t a i n c o n s t r a i n t s on loans by
banks and others would be imposed a t the

time of the Federal Register

filing.

L is t of Subjects in 12 CFR Part 207
Banks, Banking, C r e d i t , Federal Reserve System, Margin, Margin
requirements, Reporting and recordkeeping requirements, S e c u r i t i e s .
L ist of Subjects in 12 CFR Part 220
Banks, Banking, Brokers, C r e d i t , Federal Reserve System, Margin,
Margin requirements, Investments, Reporting and recordkeeping requirements,
Securities.
List of Subjects in 12 CFR Part 221
Banks, Banking, C r e d i t , Federal Reserve System, Margin, Margin
requirements, Reporting and recordkeeping requirements, S e c u r i t i e s .
Accordingly, pursuant to §§ 7 and 23 of the S e c u r i t i e s Exchange
Act of 1934, as amended (15 U.S.C. §§ 78g and 78w), the Board proposes to
amend Regulation G, T and U (12 CFR 207, 220 and 221 r e s p e c t i v e l y ) as
f o l 1ows:
PART 207 — SECURITIES CREDIT B PERSONS OTHER TH N BANKS, BROKERS, O DEALERS
Y
A
R
★

★

★

*

★

Section 207.2 — D ef in it io n s
★

( i)

"Margin stock" means:

*

★

(1) any equity s e c u r i t y r e g i s t e r e d or

having u n l i s t e d tr a d in g p r i v i l e g e s on a national s e c u r i t i e s exchange;

4

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(2)

any OTC margin stock;

(3)

any O s e c u r i t y designated by the SEC as q u a l i f i e d fo r trading
TC

in the National Market System.
(4)

any debt s e c u r i t y c o n ve r ti b le in to a margin stock or c a r r y ­

ing awarrant or r i g h t to subscribe

to or purchase a margin stock;

(5)

any warrant or r i g h t

to subscribe to or purchase a margin

(6)

any s e c u r i t y issued by an investment company r e g i s t e r e d under

stock; or

section 8 of th e Investment Company Act of 1940 (15 U.S.C. 80a-8), other than:
(1)

a company licensed under the Small Business Investment Company

Act of 1958, as amended (15 U.S.C. 661); or
(ii)

a company which has

at l e a s t 95 percent of i t s a s s e t s c o n t i n ­

uously invested in exempted s e c u r i t i e s

(as defined in 15 U.S.C. 78c(12)).

PART 220 — CREDIT B BROKERS A D DEALERS
Y
N
★

★

★

★

★

Section 220.2 - - De fi ni ti o n s
★

★

★

(o)

"Margin s e cu ri ty " means (1) any r e g i s t e r e d s e c u r i t y ;

(2)

any O margin stock;
TC

(3)

any OTC margin bond;

(4)

any O s e c u r i t y designated by t he SEC as q u a l i f i e d f o r tr ad in g
TC

in t h e National Market System; or
(5)

any s e c u r i t y issued by e i t h e r anopen-end investment

or unit investment t r u s t which i s r e g i s t e r e d under se ct io n
Company Act of 1940 (15 U.S.C. 80a-8).

company

8 of the Investment

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PART 221 — CREDIT B BANKS FOR THE PURPOSE O PURCHASING O CARRYING M
Y
F
R
ARGIN
STOCKS

Section 221.2 - - De fi ni ti o ns
*

(h)

★

"Margin stock" means:

(1) any equity s e c u r i t y r e g i s t e r e d or

having u n l i s t e d tr a d in g p r i v il e g e s on a national s e c u r i t i e s exchange;
(2)

any OTC margin stock;

(3)

any O s e c u r i t y designated by the SEC as q u a l i f i e d fo r trading
TC

in th e National Market System.
(4)

any debt s e c u r i t y co n v e r ti b le in to a margin stock or c a r r y ­

ing a warrant or r i g h t t o subscribe to or purchase a margin stoc k;
(5)

any warrant or r i g h t to subscribe to or purchase a margin

(6)

any s e c u r i t y issued by an investment company r e g i s t e r e d under

stock; or

sectio n 8 of th e Investment Company Act of 1940 (15 U.S.C. 80a-8), other than:
(i)

a company licen se d under the Small Business Investment Company

Act of 1958, as amended (15 U.S.C. 661); or
(ii)

a company which has at l e a s t 95 percent of i t s a s s e t s c o n t i n ­

uously invested in exempted s e c u r i t i e s (as defined in 15 U.S.C. 7 8 c ( l 2 ) ) .

By or der of th e Board of Governors of the Federal Reserve System,
March 7, 1984.
(signed) William W. Wiles

William W Wiles
.
Secretary of the Board


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102